A Model for Development: The secret behind success

Sridhar Vembu - CEO, Zoho Corp

It is impressive to witness the resilience of the Indian economy during the pandemic and the post pandemic period. Even as the global economic picture has darkened, the Indian economy has demonstrated tremendous dynamism. Atmanirbhar policy is taking deeper roots, as capital investment surges in manufacturing. Combined with massive increase in budgetary allocation for investment in infrastructure, in terms of highways, railways, ports, airports, telecom infrastructure, water and sanitation, India is poised for solid growth ahead.

"Atmanirbhar policy is taking deeper roots, as capital investment surges in manufacturing."

How do we sustain this growth momentum and channelize it so that its benefits are broad-based and are shared by our vast rural population? That is the focus of this article.

Visualizing India in 2047

It is useful to take a step back and visualize India in the year 2047.

1. In what industries do our companies lead the world?

2. Is prosperity widely shared in our society?

3. How big do our cities get?

4. Are our rural areas economically vibrant?

5. Is our birth rate too low?

6. Are we able to live in harmony with nature?

My primary thesis of this article is that all these questions are highly interconnected.

Rethinking the traditional economic development approach

Traditionally development and urbanization have been seen as almost synonymous. "Without urbanization, there is no development" is an underlying assumption behind a lot of economic discourse, even if it is never consciously stated. Economies of scale are often used as the rationale for this.

Here is the interesting insight. When we think about "What does it take to lead the world in a particular industry?" it comes down to depth of technology know-how and capabilities, and that comes directly from R&D. Interestingly, R&D is not subject to conventional economies of scale, in the sense that simply making a particular R&D team very large does not confer any benefit, and in fact, per capita R&D productivity actually drops when R&D teams get large.

This fact is well known in software development - large software teams all too often produce less quality software than small software teams. This fact is documented in the famous book "The Mythical Man Month" by Fred Brooks. It turns out that this applies not just to software development but to broad areas of R&D work in general.

World-class R&D teams in rural areas

How does this connect to rural development? It is possible to locate R&D work, capability building, in rural areas. This is high value work with massive leverage - the productivity could be measured in crores of value-added per person per year. As a result, R & D work can pay wages that are multiples of GDP per capita.

When a 200-500 person R&D centre is set up in a rural area, drawing a good part of its talent pool locally - which requires investment in skill development and training, which is very doable - we achieve many objectives simultaneously.

The most immediate benefit is that we create high paying jobs locally and those jobs become aspirational jobs for local youth, and we attract the best and brightest local minds. In the short term, that injects high incomes into the local economy. Long term. retaining that talent is crucial for the well-being of the region.

This investment in rural based R&D helps build capabilities more widely in the region.

"Given the vast investment in highways and railways and rural roads and fiber optics and 5G that is going on in India, this vision of making rural areas economically vibrant enough to hold and attract talent is very achievable."

I look at R&D in two ways: first in terms of designing products and services, and second in terms of achieving mastery over critical production technologies. Basic household products - products we depend on for our quality of life - exemplify the first part, from the humble nail clipper to washing machines to LED lighting to electric bicycles and autos.

The second part is mastery over the often complex production processes behind these goods. Even the humble nail clipper is not trivial to make in terms of its production process.

District-driven Development

My main point is that each of our districts can develop deep expertise in a particular category of products and become world leaders. The value chain, all the way from product design and development, underlying production technologies and processes, marketing - all of these are jobs that can be spread at a district headquarters level, accessible to talent in all the surrounding rural areas.

This enables the rural district to achieve a much more balanced regional economy, and that keeps talent at home, rooted. This is critical for maintaining our civilizational heritage.

It is also crucial for demographics. When there is more space per person, more children are born.

This model of district-driven, R&D driven development also keeps land more affordable by avoiding excessive concentrations of people. That avoids real estate bubbles, which has trapped economies such as Japan, South Korea and now China in a massive demographic crisis, as housing became unaffordable for the average worker.

Crucially, the fruits of development are more widely shared, which is crucial to achieve social stability for the long term.

Finally, rural living also promotes more appreciation for open space and nature, and particularly highly skilled, high-income rural residents develop an interest in nature and heritage preservation, natural farming and sustainable living. This is an antidote to the pervasive "competitive consumption" mindset that traps affluent people who only see other affluent people around.

Rural Infrastructure

 We can be highly connected and enjoy well-paying jobs without all of us having to move to big cities and pay most of our extra income for real estate and pay the personal, familial and social price of being uprooted and atomized.

I will conclude with this: we are doing this in one district right now - Tenkasi - and ... it is my fervent dream to make Tenkasi as prosperous as Estonia (both have the same population, about 1.4 million people) over the next 25 years.

(Exclusive to NatStrat)